Stock market ‘bubble’ a worry for RBI

The central bank had raised the stock market bubble issue last year also when stock prices skyrocketed.

The Reserve Bank of India (RBI) has again raised the red flag over the question of a bubble in the stock markets, which surged to record highs even after the Covid pandemic hit the country.

“This order of asset price inflation in the context of the estimated 8 per cent contraction in GDP in 2020-21 poses the risk of a bubble,” the RBI said.

The central bank had raised the stock market bubble issue last year also when stock prices skyrocketed.

“India’s equity prices also surged to record highs, with the benchmark index (Sensex) crossing 50,000 mark on January 21, 2021 to touch a peak of 52,154 on February 15, 2021, which represents a 100.7 per cent increase from the slump just before beginning of the nationwide lockdown (i.e., since March 23, 2020) and a 68.0 per cent increase over the year 2020-21,” the RBI’s Annual Report for 2020-21 said.

On August 22, 2020, RBI Governor Shaktikanta Das said there was a clear disconnect between the sharp surge in markets and the state of real economy, as surplus global liquidity was driving up asset prices worldwide.